This article provides a brief overview of eleven mistakes that ambulatory surgery centers make. These are mistakes that are often made in the development or the operation of surgery centers.
1. Overbuilding. Generally, a surgery center should never have less than two operating rooms. However, it is often the case that the physicians are convinced to build a larger center than needed based on projections of revenues, projections of cases or just the great look that a big center will have. Unfortunately, building big is a cost that one never stops paying for. In a recent project, we witnessed a situation where the center could have readily been completed for 13,000 square feet (the national average size for a surgery center) instead of the 21,000 square feet plan that was developed.
This extra 8,000 square feet translates into a significant cost both in building, equipping, and in debt service. The costs are essentially never recovered.
2. Overstaffing. Many management companies and many physicians that operate surgery centers simply don’t understand structural means by which staffing costs can be reduced. Essentially there are two ways in which one can go about reducing staffing costs. The first method, if taken too far, is always a losing method. This method relies upon the reducing of wages and trying to be too leanly staffed. Here, one is consistently at odds with employees over their wages. Further, if it is known that you are a lower cost payor for employees in the area, you will almost certainly end up with a worse pool of applicants. The second method to reducing staffing costs is structural in nature. This relies on reducing the number of hours that the surgery center is open to meet the number of cases expected to be done at the surgery center. Here, one pays people better per hour for the hours that they do work.
In essence, it relies on a structurally different view of how to operate a surgery center. Rather than be open five days and paying a staff for five days and operating at 30% capacity, the concept is to be open three days a week and operate at 70% capacity and pay the staff very well for those three days. Staffing costs may be targeted at 25 to 30% of collections.
3. Signing Bad Managed Care Contracts. We have seen countless surgery centers fail due to signing managed care contracts that are not profitable. In essence, no matter how many cases one does at the rates being paid by the managed care company, there is no way to make money. These centers are much better off taking a chance to operate for some payers on an "out of network basis" or simply not to serve patients of those payors. The increased number of cases at too low of rates to be profitable leads to increased staffing and equipment needs, numerous scheduling headaches and often worse service.
4. Not Hiring Professional Management Help. Many physician owned surgery centers thrive. However, with an experienced management company, the chances for success improve, even if you are giving away a small percentage of revenues and a small percentage of the profits. In essence, you significantly increase your chance of success even though you give up a piece of the profitability. The only thing worse than not hiring a management company is discussed next.
5. Hiring Bad Management. Perhaps the only thing worse than not having a management company is to hire one that is not good and does not provide good efforts and intelligent help. In a mom and pop industry, like the surgery center industry, every day there is a new company that professes to be in the ASC management business. These companies often do not have sufficient staff or support to render good services on a systematic ongoing basis. Before hiring any management company, check their references very thoroughly. Further, try to find several physicians that have worked with them that are not references and can speak about their services and quality. The amount of money that is spent on trying to separate from management companies that have underperformed is immense.
6. Dependent on too Few Physicians. Generally, surgery centers can find themselves at significant risk if they are overly dependent upon two to three physicians versus a larger group. In contrast, they can also find themselves in trouble if they have so many owners that there is a diffusion of responsibility and no one takes great care or concern about the surgery center.
7. One Bad Partner. There is an old saying for lawyers – "bad people cannot make a good deal." The corollary to this statement is that good people can make a good deal without legal documents. In a surgery center, all it takes is one poorly behaving partner, whether a management company or an individual, to spoil the whole fun. Countless hours can be spent on political problems as opposed to trying to constructively move the center forward. We witnessed, for example, one physician lead eight key orthopedic physicians out of a hospital project. Here, all it takes is one strong minded confrontational physician, particularly in situations where many other physicians don’t want to spend their time fighting or combating.
8. Lack of Compliance Efforts. Over the past few years, the Offices of Inspector General has not appeared to be overly aggressive in pursuing surgery center joint ventures and transactions. This often leads people to a false sense of comfort regarding their need for compliance efforts and regarding their need for concerns in measuring their efforts against the Anti Kickback Statute.
We believe that this can lead to bad business practices and extreme vulnerability when and if your surgery center is investigated or prosecuted. Again, we are seeing a reloading of resources into investigating healthcare fraud and improper relationships. The surgery center business industry is certainly not immune from these efforts. The DHHS Inspector General recently testified that from 2003 to 2006 the OIG recouped $13 for every $1 invested in prosecution and investigation.
9. Lack of A Core Base. Successful surgery centers are often built around a core practice and a core base of physicians. A center that is built around a whole number of unrelated parties where there is not a single coherent base of viability to the center often spells long term challenges and problems. Where you have a core base, whether a practice or core group of physicians that are devoted to the center, viability is often assured and you can spend your time trying to improve operations and profitability. Where you don’t have this core base, it can be a long term game of catch up just to survive.
10. Hospital Partner. Often physicians judge success in a hospital negotiation based on how small an ownership position the hospital will be granted. We often find if a hospital owns less than at least 20 to 30%, its interest in the project’s success is very low. Conversely, the project performs well when the hospital has a sincere interest in the project’s success.
11. Billing and Collections. There is probably no issue more fatal than not focusing appropriate efforts and resources on billing and collections.
